The 80/20 rule is a general principle that states that, for many events, roughly 80% of the effects come from 20% of the causes. In business, the 80/20 rule often refers to the idea that 80% of a company’s profits come from 20% of its customers or products. The rule can be used to help businesses understand where they should focus their time and energy in order to improve their bottom line.
The Affordable Care Act (ACA) created federal minimum medical loss ratio rules, sometimes known as the “insurance 80/20 rule.” Insurers subject to the law must have a medical loss ratio of at least 80% in the individual and small group markets, and 85% in the large group market. In other words, if you have an individual market plan, you must spend at least 80% of your monthly premiums on health care rather than administrative costs, marketing, profits, and other overhead. (The regulation exempts the most prevalent kind of employment plan, “self-insured” plans in which employers collect premiums and pay the medical claims of members directly or via an administrator.)
Most people are used to an 80/20 coinsurance policy, which states that you are liable for 20% of your medical bills and your health insurance will cover the other 80%. After you have met your deductible, this is your coinsurance.
The insurance 80/20 Rule compels insurance companies to spend at least 80% of their premium revenue on health care expenditures and quality improvement programmes. The remaining 20% might be used for administrative, overhead, and marketing expenses.
The Department of Health and Human Services has published fresh figures that illustrate how much money this regulation has saved customers over the previous several years.
Americans are receiving large rebates.
Insurance firms who do not reach or exceed the 80 percent (or 85 percent) criteria must provide refunds to their customers to make up the shortfall. Individual and corporate plan subscribers have received or will receive more than $1.9 billion in refunds since the 80/20 rule went into force in 2011.
This year alone, 6.8 million people will get over $330 million in refunds, with an average return of $80 per household.
They also have reduced premiums.
While refunds are a stopgap measure to ensure that consumers receive the necessary value for their premium dollars, consumers are also saving money upfront because insurance companies are charging lower premiums and operating more efficiently as a result of the 80/20 rule and other health care reforms.
In reality, if the 80/20 rule and other changes had not been implemented, customers would have likely spent an additional $9 billion in premiums since 2011.
That is correct. $900 billion
Insurance firms are more efficient.
Another technique to assess customer value is to examine how insurance firms spend money on costs other than medical claims and quality improvement efforts. Because a lesser share of premium dollars is spent toward administrative expenses and profit, customers get a larger return on their premium dollars.
Implementation of Insurance 80/20 rule
Since the implementation of the insurannce 80/20 rule, the percentage of premium dollars going toward administrative expenses and profit has decreased in all markets. The individual market has seen the greatest reduction, with earnings and overhead expenditure as a percentage of premium falling from 15.3 percent in 2011 to 11.7 percent in 2013.
To put it simply: the Affordable Care Act, and particularly the 80/20 rule, is saving Americans money.